Are Health Insurance Costs Tax Deductible?

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Health insurance costs are only deductible in specific circumstances.
Health insurance costs are only deductible in specific circumstances. (Image: Jupiterimages/Polka Dot/Getty Images)

Health insurance can be a substantial part of your budget, especially if your employer does not provide group health insurance or you are self-employed. The Internal Revenue Service provides specific guidelines about when you can deduct health insurance costs. Even if you are ineligible to deduct the full cost of your health insurance premium, other health care-related expenses may be deductible on your income tax return.

Self-Employment Health Insurance

If you are self-employed, the health insurance premiums that you pay for yourself, your spouse and your dependents up to age 27, are deductible on line 29 of your 2010 1040 form. For 2010, you can also subtract the amount from line 29 on line 3 of Schedule SE, the form used to determine your self-employment tax. If you were eligible for health insurance through an employer -- either yours or your spouse's -- at any time during the year but continued your own health insurance, the health insurance premiums paid for the months during which you could have been covered by an employer are not deductible.

Health Savings Accounts

If you have a qualified high-deductible heath insurance plan, either independently or though your employer, funds that are deposited into your health savings account by anyone other than your employer are tax-deductible to you. Funds deposited by your employer, other than payroll deduction amounts that you elect to contribute, are not considered taxable income to you. Consequently, you cannot deduct contributions to your HSA made by your employer on your behalf.

Itemized Medical Expenses

If you itemize your deductions by filing a copy of Schedule A with your 1040 tax return, medical expenses in excess of 7.5 percent of your adjusted gross income are deductible. The medical expenses that the IRS considers deductible can be found in the instructions for completing Form 1040. If you are not self-employed, but your employer does not offer health insurance coverage, only the premiums that exceed 7.5 percent of your adjusted gross income can be deducted.

Exceptions

Any distributions taken from your health savings account for qualified medical expenses are not deductible. Since you were able to deduct the contributions you made to your HSA, and were never taxed on contributions made by your employer to your HSA, expenses paid from your HSA are not deductible. In addition, any qualified medical expenses paid from your HSA are not counted on Schedule A to determine medical expenses that exceed 7.5 percent of your adjusted gross income.

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